Star Alliance membership to boost Air India's revenue

Air India is expecting a two-three per cent gain in revenue due to wider commercial partnerships and integration of its frequent flyer programme with 26 member airlines of the Star Alliance.

On Monday board members of Star Alliance met in London to vote on Air India's induction into the group.

A formal announcement on Air India’s induction into the alliance is expected at a press conference in New Delhi on Tuesday.

Star Alliance is the largest of three global airline alliances and includes Lufthansa, Swiss, United, Singapore Airlines as it members. Air India’s membership into the Star Alliance was put on hold in 2011 and was initiated afresh last December.

The impact on airlines

Network expansion; common airport lounges at key airports

Joint procurements and joint contracts

On passengers

Integrated FFP : Possibility to earn and burn miles on all member carriers

Use of airport lounges

Seamless transfers : Through passenger check-in and baggage check in (subject to custom rules), customer support in case of flight delays at hubs

For Air India the revenue gain is expected largely from the integration of its frequent flyer programme, which allows passengers to redeem points on flights operated by any of the 26 carriers in the alliance.

Occupancy in Air India’s business class ranges from 45 to 50 per cent and the airline’s executives hope this will encourage companies and frequent flyers to fly more with them.

“The bulk of our revenue growth is estimated to come from frequent-flyer integration. Earlier, we had tie-ups with only three international airlines,” an Air India executive who did not wish to be named said.

Air India earned Rs 19,000 crore (Rs 190 billion) in 2013-14 and is estimating its revenue will grow to over Rs 21,000 crore (Rs 210 billion) in 2014-15.

The airline’s executives expect the Star Alliance gains to materialise from the next financial year. An Air India spokesperson did not respond to an email on the issue.

Code sharing agreements that allow one airline to sell seats on another’s network, although not required by the Star Alliance, could also boost Air India’s revenue.

“We are looking to enhance code sharing,” a senior Air India executive who did not wish to be named said. Air India has such agreements with 13 airlines, the latest was signed with Hong Kong Airlines last month.

The airline’s executives are hoping to negotiate code sharing with United, which has for a couple of years not been allowing Air India to sell tickets on its US network.

“Star Alliance will be revenue positive for Air India. We expect two-three percent revenue enhancement once integration is completed with all airlines,” said Kapil Kaul of the Centre for Asia Pacific Aviation.

“On domestic routes the main drivers guiding frequent flyers are on-time performance and price, and Air India seems to meet the requirements.

For international travel, frequent flyers look at network and Air India's global network is weak.

The other drivers are price, service quality and comfort. While Air India matches price, its service quality and reliability must improve,” said Devesh Agarwal of Bangalore Aviation.

A former India head of an European airline who did not wish to be named said, “An alliance membership is a good way to flex one’s muscles, extend through shared capacity and contain costs through joint procurement. But if an airline expects its shortcomings to be corrected by entering an alliance, it is bound to be a failure.”